A three-judge panel at the US Court of International Trade spent Wednesday morning probing the legal and factual foundations of the tariff regime that now sits on almost everything the United States imports. The duties, imposed in July under Section 301 of the Trade Act of 1974, apply to 60 economies that together account for 99.4 percent of US imports. According to Reuters, the panel heard argument in Manhattan over claims that the measures are an attempt to revive the unchecked tariff power the Supreme Court struck down in February.
For retailers and e-commerce sellers, this is the third time in a year that the legal basis of their landed cost has been put in front of a court. The first regime, built on the International Emergency Economic Powers Act, was invalidated in February. The second, a temporary surcharge under Section 122, expired by operation of law in July. The duties argued on Wednesday are the third attempt, and the panel is expected to rule within weeks.
Nothing about the hearing changes what importers owe today. The duties remain in effect, US Customs and Border Protection continues to assess them, and no order suspends collection. What changed is the visibility of the risk: a written decision is now close, and the refund mechanics that followed the February ruling showed how much turns on paperwork filed before a decision lands, not after.
In short
- The US Court of International Trade heard oral argument on September 30, 2026 in In Re: Section 301 Forced Labor Cases, a consolidated challenge brought by small-business importers and 25 Democratic-led states.
- The tariffs at issue add 10 percent or 12.5 percent to goods from 60 economies covering 99.4 percent of US imports, and took effect at 12:01 a.m. ET on July 24, 2026.
- The challengers argue USTR skipped the country-specific findings that Section 301 requires, compressing investigations that historically run a year or more into roughly two and a half months.
- The American Action Forum estimates the forced-labor action costs US businesses and consumers about $58.3 billion a year on 2025 import data.
- A written ruling is expected within weeks, and the court could either vacate the tariffs outright or order USTR to redo its investigation with fuller justification.
What happened in the Manhattan courtroom?
The argument took place at the Ceremonial Courtroom at One Federal Plaza, beginning at 10 a.m. EDT on Wednesday, September 30. Reuters reported that the panel scrutinized both the legal theory and the factual record behind the duties. The three judges were appointed by Presidents Trump, Obama and Biden.
Pratik Shah, arguing for the small-business importers, told the court the administration had misused a law that offers only a “carefully constrained” tariff authority. He said the government skipped the statutory requirement to make country-specific findings that each tariff was justified. Shah contrasted the action with Section 301 duties imposed during Trump’s first term, when USTR produced country-by-country reports and tailored the tariffs to each economy.
“If you’re going to do it at breakneck speed and try to cover the entire globe, you still have to satisfy the statutory requirements,” Shah said, according to Reuters.
How the bench handled both sides
The judges interrupted counsel for both sides soon after they began, pressing them on how much detail the government’s forced-labor investigation needed to contain. They asked Shah whether he was simply requesting “more paper” from the agency. That question matters: a court persuaded the defect is procedural tends toward a remand rather than outright vacatur.
The questioning of the government ran in a different direction. The panel asked whether the administration was ignoring more detailed statutory requirements dealing specifically with forced labor, rather than leaning on the broader authority covering “unreasonable” trade practices. Trade-press accounts of the hearing described the Justice Department as having the harder time at the lectern.
Neither line of questioning settles the outcome. Oral argument is a poor predictor, and the February Supreme Court decision in the IEEPA litigation turned on a doctrine, the major questions framework, that was not the centrepiece of the day’s exchanges.
Who is on each side
Four small businesses and 25 states brought the consolidated challenge. The importer plaintiffs include Burlap & Barrel, a New York spice importer, Collective Horology, a California watch distributor, and Learning Resources, the toy company whose name appeared on the Supreme Court case that ended the IEEPA tariffs. The Liberty Justice Center represents the first two.
The state action is State of Oregon v. Trump, Court No. 26-03467, filed on August 3, 2026 and co-led by Oregon, Arizona and California. Twenty-three states appear through their attorneys general. Kentucky appears through the Office of the Governor and Pennsylvania through its governor. The named defendants include the President, the United States, USTR and Ambassador Jamieson Greer, and CBP and Commissioner Rodney S. Scott.
Eric Hamilton argued for the Department of Justice. The Liberty Justice Center has been explicit that the case is not a defence of forced labor: its position is that the goal does not license the executive to disregard the limits Congress wrote into Section 301. That framing also ran through the amicus brief filed by the original Section 301 drafters ahead of the hearing.
What exactly do the forced-labor tariffs cover?
USTR announced the action on July 23, 2026, and the duties attached to goods entered for consumption on or after 12:01 a.m. ET on July 24. The notice of action was published at 91 Fed. Reg. 47,318. The additional duty applies across Chapters 1 to 97 of the tariff schedule, which is to say across essentially the whole consumer-goods catalogue.
The rate turns on a binary finding. Economies that maintain a prohibition on importing goods made with forced labor generally draw 10 percent. Economies without such a prohibition generally draw 12.5 percent. The structure is narrow in range and wide in reach.
| Rate tier | Economies | Basis of the rate |
|---|---|---|
| 10 percent additional duty | 17 economies | Stacks on applicable MFN duties |
| 10 percent net of MFN | 2 economies, including the EU | Credited against the existing MFN rate |
| 12.5 percent net of MFN | 3 economies | Credited against the existing MFN rate |
| 12.5 percent additional duty | 38 economies | All other investigated economies |
The 10 percent tier covers Argentina, Bangladesh, Cambodia, Canada, Ecuador, El Salvador, Guatemala, Honduras, India, Indonesia, Jordan, Malaysia, Mexico, Pakistan, Sri Lanka, Trinidad and Tobago, and the United Kingdom. The 12.5 percent tier captures most of the remainder, China included. For products whose MFN rate already sits at or above 12.5 percent, the existing rate generally governs.
What is carved out
The exemptions are substantial and worth auditing line by line. Goods entered duty-free under the USMCA from Canada and Mexico are fully exempt. CAFTA-DR textile and apparel goods from six Central American and Caribbean nations are exempt. Goods already subject to Section 232 duties fall outside the action.
USTR also expanded the exemption list by 471 HTSUS subheadings after public comment, covering raw materials, supply-chain-critical goods, and products that cannot be sourced domestically in sufficient quantity. The practical consequence is that landed-cost models built in July may already be wrong. A product that appears to qualify for relief may not, and the reverse is equally common.
How did three statutes produce the same tariff?
The sequence is the backbone of the plaintiffs’ pretext argument, and it is a matter of public record rather than inference. Each regime replaced the last within days, and in the final instance within minutes.
| Regime | Authority | Headline rate | How it ended |
|---|---|---|---|
| Liberation Day tariffs | IEEPA | Country-specific, wide range | Struck down by the Supreme Court, February 20, 2026 |
| Temporary surcharge | Section 122, Trade Act of 1974 | 10 percent global | Held unlawful at the CIT in May 2026; expired by statute July 24, 2026 |
| Forced-labor tariffs | Section 301, Trade Act of 1974 | 10 percent or 12.5 percent | In effect; under challenge, ruling expected within weeks |
USTR initiated the forced-labor investigations on March 12, 2026, the day after launching a separate Section 301 inquiry into structural excess capacity. It determined the practices actionable on June 2, held a hearing on proposed action on July 7, and announced the final action on July 23. The duties attached the following minute after the Section 122 surcharge lapsed.
That compression is the plaintiffs’ strongest factual card. The statutory process for a Section 301 action runs from roughly 135 to 470 days in the ordinary course, and historical investigations have often taken a year or more. This one ran about two and a half months from initiation to action, across 60 economies simultaneously. There has never been a Section 301 proceeding at this scale.
What are the plaintiffs actually arguing?
The states’ complaint pleads three counts, and the importer suits raise overlapping theories. The arguments are administrative-law arguments first and constitutional arguments second, which is a deliberate choice: an agency-record defect is easier to win on than a separation-of-powers holding.
Count I: action beyond statutory authority
The states invoke 5 U.S.C. sections 706(2)(A) and 706(2)(C), arguing the action exceeds what Section 301 permits. Their reading of 19 U.S.C. sections 2411 to 2420 is that the statute authorises action against particular acts, policies or practices of a particular foreign country. Action must then be calibrated to eliminate the conduct identified. A single proceeding sweeping in nearly every US trading partner, they contend, is not what the statute describes.
Count II: arbitrary and capricious action
The second count argues USTR failed to articulate a rational connection between the facts found and the action taken. Rates were not tied to the measured prevalence of forced labor in any given economy. Substantive comments contradicting the agency’s rationale went unanswered in the record.
The states also press a point with practical bite: the action provides no mechanism by which a country can obtain relief by fixing the conduct at issue. A 10 percent floor applies regardless of what a trading partner does. If the tariff cannot be escaped through compliance, it is hard to describe it as calibrated to eliminate the practice.
Count III: ultra vires action and Article I
The third count invokes the non-statutory right to enjoin unlawful official conduct and the tariff power committed to Congress under Article I, Section 8. This is the count that most closely echoes the reasoning the Supreme Court applied in February. It is also the count the government most wants the panel to avoid reaching.
How did the government defend the action?
Hamilton told the court that USTR had thoroughly evaluated the prevalence of goods produced with forced labor in international commerce. He argued the government did not need to show “with metaphysical certainty” that forced labor was a “burden” on US commerce before imposing tariffs, according to Reuters.
In its court papers the administration maintained it had conducted real investigations into each trading partner’s failure to prevent imports of goods made with forced labor, and concluded tariffs were warranted for each of the 60 investigated economies. The government’s position is that the statute sets a threshold of reasoned agency judgment, not a quantitative evidentiary bar.
There is a structural argument underneath that. Section 301 is a formal-process statute with an investigation, a comment period and a hearing, all of which took place here. The administration’s view is that courts reviewing Section 301 actions have historically been deferential precisely because the process was followed, and that the speed of the proceeding is not itself a legal defect.
The government’s answer to the states’ complaint is due on October 2. That filing will signal how aggressively the administration intends to defend the legal basis, and whether any modifications or further exemptions are in prospect.
What does this cost retailers and e-commerce sellers?
The American Action Forum estimates the forced-labor Section 301 action costs US consumers and businesses approximately $58.3 billion annually, measured against 2025 import data, on roughly $894.7 billion of impacted imports. A separate Section 301 action against Brazil at 25 percent adds an estimated $1.5 billion, bringing the combined figure to about $59.8 billion a year.
The USMCA carve-out does heavy lifting in that number. Without USMCA compliance, roughly $1.1 trillion of imports would be exposed and the estimated cost would rise above $72 billion. That gap is the single largest variable in most importers’ models, and it is the one most often assumed rather than verified.
| Measure | IEEPA at launch | IEEPA when struck down | Section 122 | Section 301 forced labor |
|---|---|---|---|---|
| Exempt imports | 30.1 percent | 42.1 percent | 62.4 percent | 66.3 percent |
| Exempt imports including USMCA | 41.2 percent | 53.2 percent | 70.5 percent | 73.4 percent |
| Annualised cost including USMCA | $238.4bn | $134.5bn | $57.8bn | $59.8bn |
| Annualised cost excluding USMCA | $295.3bn | $203.9bn | $74.5bn | $73.7bn |
Source: American Action Forum analysis of US International Trade Commission and USTR data, comparing each regime as if in place for a full year.
The table carries a message that is easy to miss. The current regime costs roughly what Section 122 cost and a quarter of what the original IEEPA tariffs cost. The tariff burden has fallen substantially from its peak, mostly through accumulated exemptions, even as the legal basis has become more contested. The Tax Foundation separately estimates 2026 tariffs cost the average US household about $1,300, up from roughly $1,000 in 2025.
Where it lands in the P&L
For general merchandise, apparel and footwear sellers, a 12.5 percent additional duty on Chinese and Asian sourcing arrives on top of MFN rates that are already high in those categories. For grocery and consumables, the 10 percent tier on Canada, Mexico and India matters less where USMCA relief applies and more where it does not. The sourcing mix determines everything, which is why sector-level averages are close to useless here.
The timing is awkward in a specific way. These duties attached in late July, which is when holiday inventory for the 2026 season was largely on the water or already landed. Most of the cost sits in goods now on shelves, and the pricing decisions that absorbed it were taken months ago. The same tension runs through the MFN rewrite USTR has put on the G20 agenda, which would reshape the base rates these duties stack on.
How large is the retail sector’s exposure?
The clearest available measure of what a single invalidated tariff regime does to retail profit and loss accounts is the IEEPA refund round that followed the February ruling. Those figures are not a forecast for this case, because the duties and the legal theory differ. They are, however, a direct read on the order of magnitude.
Large US retailers disclosed IEEPA-related refunds across their 2026 reporting: Walmart about $2.9 billion, Target $994 million pretax, Home Depot $730 million, Nike $986 million booked in its fourth quarter, Costco $184 million, Lowe’s $80 million, Burlington $55 million and Best Buy $34 million. Smaller importers landed in the same process at a different scale, with furniture maker Bassett reporting $2.8 million this week.
Two things follow from that spread. The absolute numbers concentrate in the largest importers, because duty paid scales with import volume. The earnings impact, though, was often larger in percentage terms for mid-caps, where a single refund can move a quarter’s margin by a point or more.
Why the accounting treatment matters
Refunds of this kind land as a credit against cost of goods sold, which flatters gross margin in the quarter they are recognised rather than the quarter the duty was paid. That timing mismatch makes year-on-year margin comparisons unreliable for any retailer with material tariff exposure through 2026 and 2027.
It also creates a disclosure question that several of these companies have not yet answered cleanly: whether the benefit was retained, reinvested in price, or returned to shareholders. Costco stated it routed its $184 million into member prices. Most others have been less specific, and the consumer class actions now pending turn substantially on that ambiguity.
For the Section 301 duties now before the court, the exposure is still accruing rather than recoverable. Every month the litigation runs adds roughly $5 billion of sector-wide cost at the American Action Forum’s annualised estimate, and only the entries whose status is actively preserved would be in scope for any eventual remedy.
What happens if the court strikes the tariffs down?
The plaintiffs have asked the court to hold the action unlawful, vacate it, enjoin its implementation and award refunds of duties paid with costs and fees. Reuters reported the panel is expected to issue a written ruling in the coming weeks.
There are at least three realistic outcomes. The court could vacate the action outright, which would end collection and open a refund question. It could remand, directing USTR to supply the country-specific findings and justifications the statute requires while leaving the duties in place during the redo. Or it could uphold the action, in which case an appeal to the Federal Circuit follows and the duties continue.
The remand path deserves more attention than it usually gets. The CIT took exactly that route with some first-term Trump tariffs, requiring a fuller explanation rather than cancelling the measure. A remand is the outcome most consistent with judges asking a plaintiff whether he is really just asking for “more paper.”
If the court does vacate, the remedy would not be confined to the named plaintiffs. Commentators have noted that a merits ruling setting aside the action operates on the action itself. That is what makes this case materially different from the consumer class actions now working through the district courts, including the second class action over Target’s $994 million IEEPA refund.
Why refunds may not reach the companies that paid
The February Supreme Court decision produced an estimated $175 billion of potential refunds, and the distribution of that money has been the dominant trade-compliance story of 2026. It has also been a cautionary one. Entitlement turned less on who bore the cost than on entry status and whether a claim was preserved before liquidation.
Consumer Watchdog filed an amicus brief on September 14 asking the court to halt collection entirely, arguing that even if the tariffs are eventually invalidated, importer refunds will not automatically reach the consumers and businesses who actually paid the higher prices. That argument has not persuaded a court to suspend collection, but it describes the mechanism accurately.
Two features of the refund process matter most. First, liquidation is a hard gate: once an entry finally liquidates without a protest or a court-ordered reliquidation, the claim is generally gone. Second, the refund machinery itself has throughput limits, which is why CBP scheduled Phase 3 of its refund process for October 6 rather than paying everything at once.
The result is a long unclaimed tail. Our earlier analysis of why roughly $15 billion of IEEPA refunds is likely to go unclaimed set out the same structural reasons: small importers do not track liquidation dates, and the deadline passes quietly. Nothing in the current litigation changes that pattern.
What should importers do before the ruling lands?
The honest position is that the duties are in effect today and remain so until a court orders otherwise. Planning around a hoped-for ruling is not a strategy, since tariff litigation routinely takes years once appeals are counted. There are, however, concrete steps that cost little and preserve optionality.
Track entry dates and liquidation status now rather than after a decision issues. The IEEPA experience showed this is the single determinant of whether a refund claim survives. Entries liquidate on a rolling schedule, and the window closes without notice.
Audit the exemptions line by line. The USMCA carve-out, the Section 232 overlap and the 471 added HTSUS subheadings contain real relief, but eligibility is technical and often misread at the SKU level. A classification review is cheaper than a year of overpaid duty.
Model landed cost on the assumption the tariff persists. If the rate stays in place for another year or two, the question is what that means for pricing, sourcing and supplier agreements. Build the alternative case as a scenario, not as the base case.
What else is coming down the Section 301 pipeline?
The forced-labor action is not the only Section 301 proceeding in flight, and the others would stack on top of it rather than replace it. This is the part of the picture most retail planning models currently omit.
USTR launched a Section 301 investigation into structural excess capacity and production in manufacturing on March 11, 2026, covering 42 countries that represent roughly 76 percent of US imports. Proposed rates have not been published. A separate investigation into Vietnam opened on March 29, following the 2026 Special 301 Report designating Vietnam a Priority Foreign Country, the first such designation in 13 years.
If the Vietnam investigation results in duties, they would stack on the forced-labor tariff and push Vietnam’s additional rate above 20 percent. That would sit awkwardly against the US-Vietnam trade deal struck during the IEEPA period, which set the rate at 20 percent. For apparel and footwear sellers who moved sourcing out of China into Vietnam over the past decade, this is the exposure that matters most.
The broader pattern is a shift in what Section 301 is used for. The statute was built for intellectual-property theft, market-access barriers and discriminatory subsidies. It is now being applied to labor standards, digital regulation and manufacturing capacity, which is a meaningful expansion of the authority regardless of how this case resolves.
Frequently asked questions
Are the forced-labor tariffs still being collected?
Yes. Nothing in the litigation suspends collection, and CBP continues to assess the duties on covered entries. The court heard argument on September 30, 2026 but has not ruled, and no stay is in place.
When will the Court of International Trade rule?
Reuters reported the panel is expected to issue a written ruling in the coming weeks. No date has been set, and the court is not bound to any deadline. An appeal to the Federal Circuit is likely whichever way it goes.
Which countries and rates are covered?
Sixty economies, comprising 59 countries plus the European Union, accounting for 99.4 percent of US imports. Seventeen economies draw a 10 percent additional duty, 38 draw 12.5 percent, and five are assessed net of their MFN rate. China sits in the 12.5 percent tier and the UK, Canada, Mexico and India in the 10 percent tier.
What is exempt?
Goods entered duty-free under the USMCA, CAFTA-DR textile and apparel goods from six Central American and Caribbean nations, and goods already subject to Section 232 duties. USTR added 471 HTSUS subheadings to the exemption list after public comment, covering raw materials, supply-chain-critical goods and items that cannot be sourced domestically in sufficient quantity.
If the tariffs are struck down, do importers get refunds automatically?
No. The IEEPA refund process showed that entitlement depends on entry status and whether a claim was preserved before liquidation. Importers who did not protect their entries generally could not recover, which is why tracking liquidation dates now matters more than the eventual ruling.
How is this different from the IEEPA case the Supreme Court decided?
The IEEPA case turned on whether emergency economic powers authorise tariffs at all, and the Supreme Court held on February 20, 2026 that they do not. This case concerns a statute that unquestionably authorises tariffs, so the dispute is about whether USTR followed the statute’s procedural and substantive requirements rather than whether the power exists.
Could the court send the action back to USTR instead of cancelling it?
Yes, and this is a realistic outcome. The CIT has previously required the administration to supply fuller justification for tariffs rather than vacating them. A remand would leave the duties in place while USTR rebuilds the record.
What should a mid-sized importer do this month?
Three things: record entry and liquidation dates for all duty-paid entries, review classification against the exemption annexes at SKU level, and model landed cost on the assumption the tariff persists through 2027. The government’s answer to the states’ complaint, due October 2, is the next scheduled document in the case.
Are more Section 301 tariffs likely?
Investigations into structural excess capacity, covering 42 countries and about 76 percent of US imports, and into Vietnam’s intellectual-property practices remain open. Any resulting duties would stack on the forced-labor tariff rather than replace it, which for Vietnam could push the additional rate above 20 percent.